If FDI can’t sub for oil, we’ll need to live on remittances instead

COLOMBIA - Report 06 Dec 2022 by Juan Carlos Echeverry and Andrés Escobar Arango

GDP growth posted a strong 7% result in Q3. Yet across most sectors (except for oil & mining and construction), growth keeps losing momentum. Manufacturing and commerce are losing steam. Public administration spending plunged, which does not help growth but might be good news for fiscal results. Agriculture actually contracted. Enter a new chapter of below-potential GDP growth. There is broad consensus that this will continue to be the case throughout 2023; we project growth at 1.5% to 2.2% next year – and our expectations are less gloomy than both the Central Bank’s and the government’s.

Monetary policy is already doing its job of curbing private spending. Fiscal policy must also shoulder the burden, especially in 2023 and 2024. The budget addition to be submitted to Congress in Q2 2023 should be especially mindful of the current account implications of fiscal policy. Saving part of the revenues coming from the tax reform now seems more important than ever.

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